Tax tonic for power projects

New Delhi, June 30: The budget is likely to extend the tax holiday to power projects by one more year as the government gears up to provide round-the-clock power to everybody in five years.

Only the projects commissioned this fiscal will be eligible for the sops and the move is expected to benefit projects of 20,000 megawatt (MW) capacity.

Finance minister Arun Jaitley is expected to provide the incentive to power producers whose projects have been stuck in the absence of fuel linkages and other clearances, officials said.

Last year’s budget had also extended the sop by a year under Section 80-IA of the income tax act.

The law allows a producer to claim tax exemption for up to 10 years within the first 15 years of a project’s operations.

Samir Kanabar, partner, infrastructure practice, Ernst & Young, said, “Certainty of availability of tax holiday benefits should be provided to boost the power sector. Successive governments have aimed at improving and enhancing India’s installed capacity but have fell short of their own expectations owing to delays, shortage of coal/fuel to fire the power plants and environment clearances.

“With the 'clubbing' of power & coal ministries coupled with the commitment to improve the time lag in granting clearances; the new government seems to be heading in the right direction. The government should give a fillip to the sector by unequivocally granting income tax holiday by another 5-10 years,” he said.

The tax holiday will benefit state-owned NTPC, which is expected to commission over 2,000MW this fiscal.

The power ministry wants the sop to apply to all projects getting commissioned in the 12th Five-Year Plan (2012-17).

The industry, however, wants the incentive to continue for all projects getting commissioned even in the 13th plan period.

“This would be a good move but we want the benefits to extend for all power projects getting commissioned till the end of the 13th Plan. To achieve the government’s stated objective of giving 24x7 power to all, we need to double our current generating capacity by 2022,” Ashok Khurana, director-general, the Association of Power Producers, said.

The government plans to add 88,000MW capacity in the 12th Plan. Tax holiday could act as a catalyst in attracting investment, analysts said. Against a planned 78,000MW, India added only 50,000MW in 2007-12.